How to build credit without credit cards

U.S. News & World Report

If you’re one of the six in ten 18 to 29-year-olds who doesn’t have a credit card, and if you never even want one, it’s still possible to build a solid credit history. This article from U.S. News offers some advice on how to make it happen.

It’s conventional wisdom that using credit cards responsibly is the fastest and best way to build credit. It’s also conventional wisdom that using credit cards can be the fastest, best way to destroy credit.

That’s why it’s easy to understand why not everyone has or wants a credit card. In fact, recent evidence suggests that millennials are bucking the conventional wisdom. For instance, a Bankrate.com survey released last year found that more than 6 in 10 people ages 18 to 29 don’t have a credit card.

But whether you don’t trust yourself with credit cards or simply don’t want them, you should want good credit. After all, if you care to buy a home or a car, but can’t afford big-ticket purchases without a loan, you won’t get a low interest rate if your credit score is nonexistent or low.

Don’t fret. If you’re seeking to build credit without touching a credit card, you can explore these routes.

Build credit with student loans. According to some estimates, Americans owe $1.2 trillion in student debt, with interest rates as high as 6.8 percent on federal loans and 14 percent on private loans. It’s depressing, but there is a bright side, according to April Lewis-Parks, director of education and corporate communications for Consolidated Credit Counseling Services, headquartered in Fort Lauderdale, Florida.

“In spite of the bum rap they’re getting for all the problems they have potential to cause, federal student loans offer a unique opportunity for those with a limited credit history to get financing even if they have bad credit or no credit. As a result, they also offer a way for those individuals to build credit by paying those same loans off,” Lewis-Parks says.

Build credit with a car loan. If you have a car loan, those on-time payments are being reported to the three major credit bureaus. The longer you make payments without a problem, the healthier your credit score will be.

Granted, many consumers get car loans by way of responsible credit card use. But it isn’t impossible to get financing for a car without credit cards. If your bank or credit union knows you or your parents well, that may help you earn the trust needed to get a loan despite an absent lending history – especially if you’re buying a fairly inexpensive, used car.

Build credit with a bank loan. Similarly, if you’re a regular at your bank, and the manager and tellers know you well, they will likely be more inclined to help you get a loan without much of a credit history, if they can.

If you have any savings or money invested in a certificate of deposit, the bank would likely let you use that as collateral for the loan, says Alisa Livesay, a certified public accountant and a lecturer at the University of Dayton.

Livesay also recommends exploring a credit builder loan. Some banks have them, but they’re more popular with credit unions. Some institutions offer them without any collateral – the credit union or bank just wants to see that you’re a veteran customer and haven’t racked up any overdraft fees for a length of time.

But in many cases, these loans work like a secured credit card, where you put up a security deposit in case the loan goes south.

Livesay explains that consumers pay the bank either a lump sum or monthly payments for a while. Once you’ve paid whatever the bank has asked, that’s used as collateral for a line of credit, she says.

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